Exhibit 10.4


 


ASSURED GUARANTY LTD.

2004 LONG-TERM INCENTIVE PLAN


 


As Amended August 5,
2008


 

















 


ADOPTION OF ASSURED GUARANTY LTD.


2004 LONG-TERM INCENTIVE PLAN


 


WHEREAS, the Board of Directors of Assured Guaranty Ltd. (the “Company”),
by resolutions adopted on August 9, 2007, authorized the General Counsel
of the Company (and certain other officers of the Company) to adopt
modifications of the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan (the “Plan”)
to conform the Plan to the requirements of Section 409A of the US Internal
Revenue Code (“Section 409A”); and


 


WHEREAS, James M. Michener, the General Counsel of the Company, has
submitted the Plan to the chairman (the “Chairman”) of the Compensation
Committee of the Board of Directors with changes to conform the Plan to the
requirements of Section 409A, as attached hereto, and the Chairman has
approved the changes;


 


NOW, THEREFORE, the undersigned, James M. Michener, hereby adopts the
Plan in the form attached hereto, to be effective with respect to all awards
granted thereunder.


 


 


	
   

  	
   

  
	
  James M. Michener

  	
   

  
	
  General Counsel

  	
   

  
	
  Assured Guaranty Ltd.

  	
   

  



 


Date: August 5, 2008


 

















 


ASSURED GUARANTY LTD.
2004

LONG-TERM INCENTIVE PLAN


 


As Amended August 5,
2008


 


SECTION 1


GENERAL


 


1.1.  Purpose.  The Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (the “Plan”) has been established by Assured Guaranty Ltd. (the “Company”)
to (i) attract and retain persons eligible to participate in the Plan; (ii) motivate
Participants, by means of appropriate incentives, to achieve long-range goals; (iii) provide
incentive compensation opportunities that are competitive with those of other
similar companies; and (iv) further identify Participants’ interests with
those of the Company’s other shareholders through compensation that is based on
the Company’s common shares; and thereby promote the long-term financial
interest of the Company and the Subsidiaries, including the growth in value of
the Company’s equity and enhancement of long-term shareholder return.


 


1.2.  Participation.  Subject to the terms and conditions of the
Plan, the Committee shall determine and designate, from time to time, from
among the Eligible Individuals, those persons who will be granted one or more
Awards under the Plan, and thereby become “Participants” in the Plan.


 


1.3.  Operation,
Administration, and Definitions.  The
operation and administration of the Plan, including the Awards made under the
Plan, shall be subject to the provisions of Section 5 (relating to
operation and administration). 
Capitalized terms in the Plan shall be defined as set forth in the Plan
(including the definition provisions of Section 9).


 


SECTION 2


OPTIONS AND SARS


 


2.1.  Definitions.


 


(a)           The grant
of an “Option” entitles the Participant to purchase Shares at an Exercise Price
established by the Committee.  Any Option
granted under this Section 2 may be either an incentive stock option (an “ISO”)
or a non-qualified option (an “NQO”), as determined in the discretion of the
Committee.  An “ISO” is an Option that is
intended to satisfy the requirements applicable to an “incentive stock option”
described in section 422(b) of the Code. 
An “NQO” is an Option that is not intended to be an “incentive stock
option” as that term is described in section 422(b) of the Code.


 


(b)           A stock
appreciation right (an “SAR”) entitles the Participant to receive, in cash or
Shares (as determined in accordance with subsection 2.5), value equal to (or
otherwise based on) the excess of: (a) the Fair Market Value of a
specified number of Shares at the time of exercise; over (b) an Exercise
Price established by the Committee.


 


2.2.  Exercise
Price.  The “Exercise Price” of each
Option and SAR granted under this Section 2 shall be established by the
Committee or shall be determined by a method established 


 


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by the Committee at the time the Option or SAR is
granted.  The Exercise Price shall not be
less than 100% of the Fair Market Value of a Share on the date of grant (or, if
greater, the par value, if any, of a Share).


 


2.3.  Exercise.  An Option and an SAR shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee.  In no
event, however, shall an Option or SAR expire later than ten years after the
date of its grant.


 


2.4.  Payment
of Option Exercise Price.  The
payment of the Exercise Price of an Option granted under this Section 2
shall be subject to the following:


 


(a)           Subject
to the following provisions of this subsection 2.4, the full Exercise Price for
Shares purchased upon the exercise of any Option shall be paid at the time of
such exercise (except that, in the case of an exercise arrangement approved by
the Committee and described in paragraph 2.4(c), payment may be made as soon as
practicable after the exercise).


 


(b)           Subject
to applicable law, the full Exercise Price shall be payable in cash, by
promissory note, or by tendering, by either actual delivery of shares or by
attestation, Shares acceptable to the Committee, and valued at Fair Market
Value as of the day of exercise, or in any combination thereof, as determined
by the Committee.


 


(c)           Subject
to applicable law, the Committee may permit a Participant to elect to pay the
Exercise Price upon the exercise of an Option by irrevocably authorizing a
third party to sell Shares (or a sufficient portion of the Shares) acquired
upon exercise of the Option and remit to the Company a sufficient portion of
the sale proceeds to pay the entire Exercise Price and any tax withholding
resulting from such exercise.


 


2.5.  Settlement
of Award.  Settlement of Options and
SARs is subject to subsection 5.7.


 


2.6.  No
Repricing.  Except for either
adjustments pursuant to paragraph 5.2(f) (relating to the adjustment of
Shares), or reductions of the Exercise Price approved by the Company’s
shareholders, the Exercise Price for any outstanding Option may not be
decreased after the date of grant nor may an outstanding Option granted under
the Plan be surrendered to the Company as consideration for the grant of a
replacement Option with a lower Exercise Price.


 


2.7.  Grants
of Options and SARs.  An Option may
but need not be in tandem with an SAR, and an SAR may but need not be in tandem
with an Option.  If an Option is in
tandem with an SAR, the Exercise Price of both the Option and SAR shall be the
same, and the exercise of the Option or SAR with respect to a Share shall
cancel the corresponding tandem SAR or Option right with respect to such
Share.  If an SAR is in tandem with an
Option but is granted after the grant of the Option, or if an Option is in
tandem with an SAR but is granted after the grant of the SAR, the later granted
tandem Award shall have the same Exercise Price as the earlier granted Award,
but the Exercise Price for the later granted Award may be less than the Fair
Market Value of the Share at the time of such grant.


 


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SECTION 3


FULL VALUE AWARDS


 


3.1.  Definition.  A “Full Value Award” is a grant of one or
more Shares or a right to receive one or more Shares in the future, with such
grant subject to one or more of the following, as determined by the Committee:


 


(a)           The grant
shall be in consideration of a Participant’s previously performed services, or
surrender of other compensation that may be due.


 


(b)           The grant
shall be contingent on the achievement of performance or other objectives
during a specified period.


 


(c)           The grant
shall be subject to a risk of forfeiture or other restrictions that will lapse
upon the achievement of one or more goals relating to completion of service by
the Participant, or achievement of performance or other objectives.


 


The grant of Full Value Awards may also be subject to such other
conditions, restrictions and contingencies, as determined by the Committee.


 


3.2.  Restrictions on Awards.


 


(a)           The
Committee may designate a Full Value Award granted to any Participant as “performance-based
compensation” as that term is used in section 162(m) of the Code.  To the extent required by Code section
162(m), any Full Value Award so designated shall be conditioned on the
achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures selected by the Committee. 
For Awards under this Section 3 intended to be “performance-based
compensation,” the grant of the Awards and the establishment of the performance
objectives shall be made during the period required under Code section 162(m).


 


(b)           If the
right to become vested in a Full Value Award is conditioned on the completion
of a specified period of service with the Company or the Subsidiaries, without
achievement of Performance Measures or other performance objectives (whether or
not related to the Performance Measures) being required as a condition of
vesting, and without it being granted in lieu of other compensation, then the
required period of service for full vesting shall be not less than three years
(subject to acceleration of vesting, to the extent permitted by the Committee,
in the event of the Participant’s death, disability, retirement, change in
control or involuntary termination).


 


SECTION 4


CASH INCENTIVE AWARDS


 


A Cash Incentive Award is the grant of a right to receive a payment of
cash (or in the discretion of the Committee, Shares having value equivalent to
the cash otherwise payable) that is contingent on achievement of performance or
other objectives over a specified period established by the Committee.  The grant of Cash Incentive Awards may also
be subject to such other conditions, restrictions and contingencies, as
determined by the Committee.  The 


 


3

















 


Committee may designate a Cash Incentive Award granted
to any Participant as “performance-based compensation” as that term is used in
section 162(m) of the Code.  To the
extent required by Code section 162(m), any such Award so designated shall be
conditioned on the achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures as selected by the Committee.  For Awards under this Section 4 intended
to be “performance-based compensation,” the grant of the Awards and the
establishment of the performance objectives shall be made during the period
required under Code section 162(m). 
Except as otherwise provided in the applicable plan or arrangement,
distribution of any bonus awards by the Company or its Subsidiaries (whether
granted this Plan or otherwise), for a performance period ending in a calendar
year, shall be made to the participant not later than March 15 of the
following calendar year; provided, however, that for purposes of determining
compliance with Code section 409A, a payment will be considered to satisfy the
requirement of this sentence if distribution is made no later than the end of
the calendar year following the end of the applicable performance period.


 


SECTION 5


OPERATION AND ADMINISTRATION


 


5.1.  Effective
Date.  The Plan shall be effective on
the date immediately prior to the date of the initial public offering of the
shares of the Company (the “Effective Date”). 
The Plan shall be unlimited in duration and, in the event of Plan
termination, shall remain in effect as long as any Awards under it are
outstanding; provided, however, that no Awards may be granted under the Plan
after the ten-year anniversary of the Effective Date.


 


5.2.  Shares
and Other Amounts Subject to Plan. 
The Shares for which Awards may be granted under the Plan shall be
subject to the following:


 


(a)           The
Shares with respect to which Awards may be made under the Plan shall be: (i) shares
currently authorized but unissued; (ii) to the extent permitted by
applicable law, currently held or acquired by the Company as treasury shares,
including shares purchased in the open market or in private transactions (it
being recognized that at the time of adoption of the Plan the Company is not
permitted to have treasury shares); or (iii) shares purchased in the open
market by a direct or indirect wholly-owned subsidiary of the Company (as
determined by the Chief Executive Officer or the Chief Financial Officer of the
Company).  The Company may contribute to
the subsidiary or trust an amount sufficient to accomplish the purchase in the
open market of the Shares to be so acquired (as determined by the Chief
Executive Officer or the Chief Financial Officer of the Company).


 


(b)           Subject
to the following provisions of this subsection 5.2, the maximum number of
Shares that may be delivered to Participants and their beneficiaries under the
Plan shall be 7,500,000 Shares.


 


(c)           To the
extent provided by the Committee, any Award may be settled in cash rather than
Shares.


 


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(d)           Only
Shares, if any, actually delivered to the Participant or beneficiary on an
unrestricted basis with respect to an Award shall be treated as delivered for
purposes of the determination under paragraph (b) above, regardless of
whether the Award is denominated in Shares or cash.  Consistent with the foregoing:


 


(i)            To the
extent any Shares covered by an Award are not delivered to a Participant or
beneficiary because the Award is forfeited or canceled, or the Shares are not
delivered on an unrestricted basis (including, without limitation, by reason of
the Award being settled in cash or used to satisfy the applicable tax
withholding obligation), such Shares shall not be deemed to have been delivered
for purposes of the determination under paragraph (b) above.


 


(ii)           If the
exercise price of any Option granted under the Plan or the tax withholding
obligation with respect to any Award granted under the Plan is satisfied by
tendering Shares to the Company (by either actual delivery or by attestation),
only the number of Shares issued net of the Shares tendered shall be deemed
delivered for purposes of determining the number of Shares available for
delivery under the Plan.


 


(e)           Subject
to paragraph 5.2(f), the following additional maximums are imposed under the
Plan:


 


(i)            The
maximum number of Shares that may be delivered to Participants and their
beneficiaries with respect to ISOs granted under the Plan shall be 7,500,000
Shares; provided, however, that to the extent that Shares not delivered must be
counted against this limit as a condition of satisfying the rules applicable
to ISOs, such rules shall apply to the limit on ISOs granted under the
Plan.


 


(ii)           The
maximum number of Shares that may be covered by Awards granted to any one
Participant during any one-calendar-year period pursuant to Section 2
(relating to Options and SARs) shall be 2,500,000 Shares.  For purposes of this paragraph (ii), if an
Option is in tandem with an SAR, such that the exercise of the Option or SAR
with respect to a Share cancels the tandem SAR or Option right, respectively,
with respect to such Share, the tandem Option and SAR rights with respect to
each Share shall be counted as covering but one Share for purposes of applying
the limitations of this paragraph (ii).


 


(iii)          The
maximum number of Shares that may be issued in conjunction with Awards granted
pursuant to Section 3 (relating to Full Value Awards) shall be 2,500,000
Shares.


 


(iv)          For Full
Value Awards that are intended to be “performance-based compensation” (as that
term is used for purposes of Code section 162(m)), no more than 1,250,000
Shares may be delivered pursuant to such Awards granted to any one Participant
during any one-calendar-year period; provided that Awards described in this
paragraph (iv) that are intended to be performance-based compensation
shall be subject to the following:


 


5

















 


(A)          If the Awards
are denominated in Shares but an equivalent amount of cash is delivered in lieu
of delivery of Shares, the foregoing limit shall be applied based on the
methodology used by the Committee to convert the number of Shares into cash.


 


(B)           If
delivery of Shares or cash is deferred until after Shares have been earned, any
adjustment in the amount delivered to reflect actual or deemed investment
experience after the date the Shares are earned shall be disregarded.


 


(v)           For Cash
Incentive Value Awards that are intended to be “performance-based compensation”
(as that term is used for purposes of Code section 162(m)), the maximum amount
payable to any Participant with respect to any performance period shall equal
$500,000 multiplied by the number of calendar months included in that
performance period; provided that Awards described in this paragraph (v), that
are intended to be performance-based compensation, shall be subject to the
following:


 


(A)          If the
Awards are denominated in cash but an equivalent amount of Shares is delivered
in lieu of delivery of cash, the foregoing limit shall be applied to the cash
based on the methodology used by the Committee to convert the cash into Shares.


 


(B)           If
delivery of Shares or cash is deferred until after cash has been earned, any
adjustment in the amount delivered to reflect actual or deemed investment
experience after the date the cash is earned shall be disregarded.


 


(f)            In the
event of a corporate transaction involving the Company (including, without
limitation, any share dividend, share split, extraordinary cash dividend,
recapitalization, reorganization, merger, amalgamation, consolidation,
split-up, spin-off, sale of assets or subsidiaries, combination or exchange of
shares), the Committee may adjust Awards to preserve the benefits or potential
benefits of the Awards.  Action by the
Committee may include: (i) adjustment of the number and kind of shares
which may be delivered under the Plan; (ii) adjustment of the number and
kind of shares subject to outstanding Awards; (iii) adjustment of the
Exercise Price of outstanding Options and SARs; and (iv) any other
adjustments that the Committee determines to be equitable (which may include,
without limitation, (A) replacement of Awards with other Awards which the
Committee determines have comparable value and which are based on shares of a
company resulting from the transaction, and (B) cancellation of the Award
in return for cash payment of the current value of the Award, determined as
though the Award is fully vested at the time of payment, provided that in the
case of an Option, the amount of such payment may be the excess of value of the
Shares subject to the Option at the time of the transaction over the exercise
price).  However, in no event shall this
paragraph (f) be construed to permit a modification (including a
replacement) of an Option or SAR if such modification either: (i) would
result in accelerated recognition of income or imposition of additional tax
under Code section 409A; or (ii) would cause the Option or SAR subject to
the modification (or 


 


6

















 


cause a
replacement Option or SAR) to be subject to Code section 409A, provided that
the restriction of this clause (ii) shall not apply to any Option or SAR
that, at the time it is granted or otherwise, is designated as being deferred
compensation subject to Code section 409A.


 


5.3.  General
Restrictions.  Delivery of Shares or
other amounts under the Plan shall be subject to the following:


 


(a)           Notwithstanding
any other provision of the Plan, the Company shall have no obligation to
recognize an exercise of an Option or SAR or deliver any Shares or make any
other distribution of benefits under the Plan unless such exercise, delivery or
distribution complies with all applicable laws (including, without limitation,
the requirements of the United States Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity or other
regulatory authority with respect to the issue of shares and securities by the
Company.


 


(b)           To the
extent that the Plan provides for issuance of share certificates to reflect the
issuance of Shares, the issuance may be effected on a non-certificated basis,
to the extent not prohibited by or may be made in compliance with applicable
law, the Bye-laws of the Company, or the applicable rules of any stock
exchange.


 


5.4.  Tax
Withholding.  All distributions under
the Plan are subject to withholding of all applicable taxes, and the Committee
may condition the delivery of any Shares or other benefits under the Plan on
satisfaction of the applicable withholding obligations.  Except as otherwise provided by the Committee
and subject to applicable law, such withholding obligations may be satisfied (i) through
cash payment by the Participant; (ii) through the surrender of Shares
which the Participant already owns (provided, however, that to the extent
Shares described in this clause (ii) are used to satisfy more than the
minimum statutory withholding obligation, as described below, then, except as
otherwise provided by the Committee, payments made with Shares in accordance
with this clause (ii) shall be limited to Shares held by the Participant
for not less than six months prior to the payment date); or (iii) through
the surrender of Shares to which the Participant is otherwise entitled under
the Plan; provided, however, that such Shares under this clause (iii) may
be used to satisfy not more than the Company’s minimum statutory withholding
obligation (based on minimum statutory withholding rates for Federal and state
tax purposes, including payroll taxes, that are applicable to such supplemental
taxable income).


 


5.5.  Grant
and Use of Awards.  In the discretion
of the Committee, a Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to a
Participant.  Awards may be granted as
alternatives to or replacement of awards granted or outstanding under the Plan,
or any other plan or arrangement of the Company or a Subsidiary (including a
plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Subsidiary). 
Subject to the overall limitation on the number of Shares that may be
delivered under the Plan, the Committee may use available Shares as the form of
payment for compensation, grants or rights earned or due under any other
compensation plans or arrangements of the Company or a Subsidiary, including
the plans and arrangements of the Company or a Subsidiary assumed in business
combinations.  Notwithstanding the
provisions of subsection 2.2, Options and SARs granted under the Plan in
replacement for awards under 


 


7

















 


plans and arrangements of the Company or a Subsidiary
assumed in business combinations may provide for Exercise Prices that are less
than the Fair Market Value of the Shares at the time of the replacement grants,
if the Committee determines that such Exercise Price is appropriate to preserve
the economic benefit of the award.  The
provisions of this subsection shall be subject to the provisions of subsection
5.15.


 


5.6.  Dividends
and Dividend Equivalents.  An Award
(including without limitation an Option or SAR Award) may provide the
Participant with the right to receive dividend or dividend equivalent payments
with respect to Shares subject to the Award (both before and after the Shares
subject to the Award is earned, vested, or acquired), which payments may be
either made currently or credited to an account for the Participant, and may be
settled in cash or Shares as determined by the Committee.  Any such settlements, and any such crediting
of dividends or dividend equivalents or reinvestment in Shares, will be subject
to the Company’s Bye-laws as well as applicable law and further may be subject
to such conditions, restrictions and contingencies as the Committee shall
establish, including the reinvestment of such credited amounts in Share
equivalents.  The provisions of this
subsection shall be subject to the provisions of subsection 5.15.


 


5.7.  Settlement
of Awards.  The obligation to make
payments and distributions with respect to Awards may be satisfied through cash
payments, the delivery of Shares, the granting of replacement Awards, or
combination thereof as the Committee shall determine.  Satisfaction of any such obligations under an
Award, which is sometimes referred to as “settlement” of the Award, may be
subject to such conditions, restrictions and contingencies as the Committee
shall determine.  The Committee may permit
or require the deferral of any Award payment, subject to such rules and
procedures as it may establish, which may include provisions for the payment or
crediting of interest or dividend equivalents, and may include converting such
credits into deferred Share equivalents. 
Except for Options and SARs designated at the time of grant or otherwise
as intended to be subject to Code section 409A, this subsection 5.7 shall not
be construed to permit the deferred settlement of Options or SARs, if such
settlement would result in deferral of compensation under Treas. Reg.
§1.409A-1(b)(5)(i)(A)(3) (except as permitted in paragraphs (i) and (ii) of
that section).  Each Subsidiary shall be
liable for payment of cash due under the Plan with respect to any Participant
to the extent that such benefits are attributable to the services rendered for
that Subsidiary by the Participant.  Any
disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.  The
provisions of this subsection shall be subject to the provisions of subsection
5.15.


 


5.8.  Transferability.  Except as otherwise provided by the
Committee, Awards under the Plan are not transferable except as designated by
the Participant by will or by the laws of descent and distribution.


 


5.9.  Form and
Time of Elections.  Unless otherwise
specified herein, each election required or permitted to be made by any
Participant or other person entitled to benefits under the Plan, and any
permitted modification, or revocation thereof, shall be in writing filed with
the Committee at such times, in such form, and subject to such restrictions and
limitations, not inconsistent with the terms of the Plan, as the Committee
shall require.


 


8

















 


5.10.  Agreement
With Company.  An Award under the
Plan shall be subject to such terms and conditions, not inconsistent with the
Plan, as the Committee shall, in its sole discretion, prescribe.  The terms and conditions of any Award to any
Participant shall be reflected in such form of written (including electronic)
document as is determined by the Committee. 
A copy of such document shall be provided to the Participant, and the
Committee may, but need not require that the Participant sign a copy of such
document.  Such document we refer to in
the Plan as an “Award Agreement” regardless of whether any Participant
signature is required.


 


5.11.  Action
by Company or Subsidiary.  Any action
required or permitted to be taken by the Company or any Subsidiary shall be by
resolution of its board of directors, or by action of one or more members of
the board (including a committee of the board) who are duly authorized to act
for the board, or (except to the extent prohibited by applicable law or
applicable rules of any stock exchange) by a duly authorized officer of
such company.


 


5.12.  Gender
and Number.  Where the context
admits, words in any gender shall include any other gender, words in the
singular shall include the plural and the plural shall include the singular.


 


5.13.  Limitation of Implied Rights.


 


(a)           Neither a
Participant nor any other person shall, by reason of participation in the Plan,
acquire any right in or title to any assets, funds or property of the Company
or any Subsidiary whatsoever, including, without limitation, any specific
funds, assets, or other property which the Company or any Subsidiary, in its
sole discretion, may set aside in anticipation of a liability under the
Plan.  A Participant shall have only a
contractual right to the Shares or amounts, if any, payable under the Plan,
unsecured by any assets of the Company or any Subsidiary, and nothing contained
in the Plan shall constitute a guarantee that the assets of the Company or any
Subsidiary shall be sufficient to pay any benefits to any person.


 


(b)           The Plan
does not constitute a contract of employment, and selection as a Participant
will not give any participating employee or other individual the right to be
retained in the employ of the Company or any Subsidiary or the right to
continue to provide services to the Company or any Subsidiary, nor any right or
claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.  Except as otherwise provided in the Plan, no
Award under the Plan shall confer upon the holder thereof any rights as a
shareholder of the Company prior to the date on which the individual fulfills
all conditions for receipt of such rights and is registered in the Company’s
Register of Shareholders.


 


(c)           All Stock
and shares issued under any Award or otherwise are to be held subject to the
provisions of the Company’s Bye-laws and each Participant is deemed to agree to
be bound by the terms of the Company’s Bye-laws as they stand at the time of
issue of any Shares under the Plan.


 


9
















 


5.14.  Evidence.  Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.


 


5.15.  Limitations
under Section 409A.  The
provisions of the Plan shall be subject to the following:


 


(a)           Neither
subsection 5.5 nor any other provision of the Plan shall be construed to permit
the grant of an Option or SAR if such action would cause the Option or SAR
being granted or the option or stock appreciation right being replaced to be
subject to Code section 409A, provided that this paragraph (a) shall not
apply to any Option or SAR (or option or stock appreciation right granted under
another plan) being replaced that, at the time it is granted or otherwise, is
designated as being deferred compensation subject to Code section 409A.


 


(b)           Except
with respect to an Option or SAR that, at the time it is granted or otherwise,
is designated as being deferred compensation subject to Code section 409A, no
Option or SAR shall condition the receipt of dividends with respect to an
Option or SAR on the exercise of such Award, or otherwise provide for payment
of such dividends in a manner that would cause the payment to be treated as an
offset to or reduction of the exercise price of the Option or SAR pursuant
Treas. Reg. §1.409A-1(b)(5)(i)(E).


 


(c)           The Plan
shall not be construed to permit a modification of an Award, or to permit the
payment of a dividend or dividend equivalent, if such actions would result in
accelerated recognition of taxable income or imposition of additional tax under
Code section 409A.


 


SECTION 6


CHANGE IN CONTROL


 


Subject to the provisions of paragraph 5.2(f) (relating to the
adjustment of shares), the occurrence of a Change in Control shall have the
effect, if any, with respect to any Award as set forth in the Award Agreement
or, to the extent not prohibited by the Plan or the Award Agreement, as
provided by the Committee.


 


SECTION 7


COMMITTEE


 


7.1.  Administration.  The authority to control and manage the
operation and administration of the Plan shall be vested in a committee (the “Committee”)
in accordance with this Section 7. 
The Committee shall be selected by the Board, and shall consist solely
of two or more members of the Board.  As
a committee of the Board, the Committee is subject to the overview of the
Board.  If the Committee does not exist,
or for any other reason determined by the Board, and to the extent not
prohibited by applicable law or the applicable rules of any stock
exchange, the Board may take any action under the Plan that would otherwise be
the responsibility of the Committee.


 


7.2.  Powers
of Committee.  The Committee’s
administration of the Plan shall be subject to the following:


 


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(a)           Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to select from among the Eligible Individuals those persons who
shall receive Awards, to determine the time or times of receipt, to determine
the types of Awards and the number of Shares covered by the Awards, to
establish the terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section 8)
to cancel or suspend Awards.


 


(b)           To the
extent that the Committee determines that the restrictions imposed by the Plan
preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States and Bermuda, the Committee will have
the authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside of the United States and Bermuda.


 


(c)           The
Committee will have the authority and discretion to interpret the Plan, to
establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any Award Agreement made
pursuant to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.


 


(d)           Any
interpretation of the Plan by the Committee and any decision made by it under
the Plan is final and binding on all persons.


 


(e)           In
controlling and managing the operation and administration of the Plan, the
Committee shall take action in a manner that conforms to applicable corporate
law.


 


7.3.  Delegation
by Committee.  Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange,
the Committee may allocate all or any portion of its responsibilities and
powers to any one or more of its members and may delegate all or any part of
its responsibilities and powers to any person or persons selected by it.  Any such allocation or delegation may be
revoked by the Committee at any time.


 


7.4.  Information
to be Furnished to Committee.  The
Company and Subsidiaries shall furnish the Committee with such data and
information as it determines may be required for it to discharge its
duties.  The records of the Company and
Subsidiaries as to an employee’s or Participant’s employment (or other
provision of services), termination of employment (or cessation of the
provision of services), leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect.  Participants and other persons entitled to
benefits under the Plan must furnish the Committee such evidence, data or
information as the Committee considers desirable to carry out the terms of the
Plan.


 


SECTION 8


AMENDMENT AND TERMINATION


 


The Board may, at any time, amend or terminate the Plan, and may amend
any Award Agreement, provided that no amendment or termination may, in the
absence of written consent to the change by the affected Participant (or, if
the Participant is not then living, the affected beneficiary), adversely affect
the rights of any Participant or beneficiary under any Award granted under the
Plan prior to the date such amendment is adopted by the Board; and further 


 


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provided that adjustments pursuant to paragraph 5.2(f) shall
not be subject to the foregoing limitations of this Section 8; and further
provided that the provisions of subsection 2.6 (relating to Option repricing)
cannot be amended unless the amendment is approved by the Company’s
shareholders.  No amendment or
termination shall be adopted or effective if it would result in accelerated
recognition of income or imposition of additional tax under Code section 409A
or, except as otherwise provided in the amendment, would cause amounts that
were not otherwise subject to Code section 409A to become subject to section
409A.


 


SECTION 9


DEFINED TERMS


 


In addition to the other definitions contained herein, the following
definitions shall apply:


 


(a)           Award.  The term “Award” means any award or benefit
granted under the Plan, including, without limitation, the grant of Options,
SARs, and Full Value Awards.


 


(b)           Board.  The term “Board” means the Board of Directors
of the Company.


 


(c)           Change
in Control.  The term “Change in
Control” means the occurrence of the events described in any of paragraphs (i),
(ii), (iii) or (iv) below:


 


(i)            Acquisition of Securities.  The acquisition (disregarding any Excluded
Acquisitions) by any Person of ownership of any Voting Securities if,
immediately after such acquisition, such Person has ownership of more than
twenty-five percent (25%) of either the Outstanding Company Common Shares, or
the combined voting power of the Outstanding Company Voting Securities.  In no event shall a Change in Control occur
by reason of ownership of Shares, Voting Securities, Outstanding Company Common
Shares, or Outstanding Company Voting Securities by ACE Limited and/or any
successor or Affiliate of ACE Limited.


 


(ii)           Change in Board. 
Individuals who constitute the Incumbent Board cease for any reason to
represent greater than 50% of the voting power of members of the Board.


 


(iii)          Corporate Transaction.  Consummation of (A) a Corporate
Transaction or (B) the sale or other disposition of more than fifty
percent (50%) of the operating assets of the Company (determined on a
consolidated basis), but not including an Internal Reorganization.


 


(iv)          Liquidation. 
Approval by the shareholders of the Company of a plan of complete
liquidation or dissolution of the Company.


 


(v)           Definitions. 
The terms used in the definition of “Change in Control” shall have the
following meanings:


 


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(A)          An “Affiliate”
of a person or other entity shall mean a person or other entity that directly
or indirectly controls, is controlled by, or is under common control with the
person or other entity specified.


 


(B)           The term “Company
Plan” means an employee benefit plan (or related trust) sponsored or maintained
by the Company or any Affiliate of the Company.


 


(C)           The term “Corporate
Transaction” means any reorganization, merger, amalgamation, consolidation, or
other business combination involving the Company.


 


(D)          The
following shall constitute “Excluded Acquisitions” of Shares or Voting
Securities (whichever is applicable):


 


(I)            Any
acquisition of Shares or Voting Securities (whichever is applicable) by a
Company Plan.


 


(II)           Any
acquisition of Shares or Voting Securities (whichever is applicable) by an
underwriter temporarily holding securities pursuant to an offering of such
securities.


 


(III)         Any acquisition of Shares or Voting Securities
(whichever is applicable) by any Person pursuant to an Internal Reorganization.


 


(IV)         Any
acquisition of Shares or Voting Securities (whichever is applicable) directly
from the Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was acquired directly from the Company).


 


(V)           Any
acquisition of Shares or Voting Securities (whichever is applicable) by the
Company.


 


(VI)         Any
acquisition of Shares or Voting Securities (whichever is applicable) by ACE
Limited and/or any successor or Affiliate of ACE Limited or any employee
benefit plan (or related trust) maintained by any such entity.


 


(E)           The
members of the “Incumbent Board” shall mean the members of the Board of
Directors as of the Effective Date and shall also mean any individual becoming
a director after that date whose election, or nomination for election by the
Company shareholders, was approved by a vote of a least a majority of the
directors then comprising the Incumbent Board; provided, however,
that there shall be excluded for this purpose any such individual whose initial
assumption of office occurs as a result of an actual or publicly threatened
election contest (as such terms are used in Rule 14a-11 promulgated under
the Securities Exchange Act of 1934) or 


 


13

















 


other actual or
publicly threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.


 


(F)           The term “Internal
Reorganization” means a sale-leaseback or other arrangement resulting in the
continued utilization of the assets being sold or otherwise transferred (or the
operating products of such assets) by the Company.  The term “Internal Reorganization” also means
a Corporate Transaction to which all of paragraphs (I), (II), and (III) below
are applicable:


 


(I)            All
or substantially all of the individuals and entities who have ownership,
respectively, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction have ownership
of more than fifty percent (50%) of, respectively, the then outstanding shares
of common equity securities and the combined voting power of the then
outstanding Voting Securities entitled to vote generally in the election of
directors, as the case may be, of the ultimate parent entity resulting from
such Corporate Transaction (including, without limitation, an entity which, as
a result of such transaction, has ownership of the Company or all or
substantially all of the assets of the Company either directly or through one
or more subsidiaries) in substantially the same relative proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Company Common Shares and Outstanding Company Voting Securities, as the case may
be.


 


(II)           No
Person (other than the Company, any Company Plan or related trust, the
corporation resulting from such Corporate Transaction, and any Person having
ownership, immediately prior to such Corporate Transaction, directly or
indirectly, of more than twenty-five percent (25%) of the Outstanding Company
Common Shares or the Outstanding Company Voting Securities, as the case may be)
will have ownership of more than twenty-five percent (25%) of, respectively,
the then outstanding common shares of the ultimate parent entity resulting from
such Corporate Transaction or the combined voting power of the then outstanding
Voting Securities of such entity.


 


(III)         Individuals who were members of the Incumbent
Board immediately prior to the Corporate Transaction will constitute at least a
majority of the members of the board of directors of the ultimate parent entity
resulting from such Corporate Transaction.


 


(G)           The term “Outstanding
Company Common Shares” as of any date means the then outstanding common shares,
of whatever subclass or series, of the Company.


 


14

















 


(H)          The term “Outstanding
Company Voting Securities” as of any date means the then outstanding Voting
Securities (which shall be counted based on the number of votes that may be
cast per share).


 


(I)            The term
“ownership” means beneficial ownership within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934.


 


(J)            The term
“Person” means an individual, entity or group as that term is used in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934.


 


(K)          The term “Voting
Securities” as of any date means any of the outstanding securities of the
Company entitled to vote generally in the election of the Company’s Board of
Directors.


 


(d)           Code.  The term “Code” means the United States
Internal Revenue Code of 1986, as amended. 
A reference to any provision of the Code shall include reference to any
successor provision of the Code.


 


(e)           Dollars.  As used in the Plan, the term “dollars” or
numbers preceded by the symbol “$” means amounts in United States dollars.


 


(f)            Eligible
Individual.  For purposes of the
Plan, the term “Eligible Individual” means any employee of the Company or a
Subsidiary, and any consultant, director, or other person providing services to
the Company or a Subsidiary; provided, however, that to the extent required by
the Code, an ISO may only be granted to an employee of the Company or a
subsidiary corporation of the Company (as that term is used in section 424(f) of
the Code).  An Award may be granted to an
employee or other individual providing services, in connection with hiring,
retention or otherwise, prior to the date the employee or service provider
first performs services for the Company or the Subsidiaries, provided that such
Awards shall not become vested prior to the date the employee or service
provider first performs such services.


 


(g)           Fair
Market Value.  Except as otherwise
provided by the Committee, the “Fair Market Value” of a Share as of any date
shall be the closing market composite price for such Share as reported for the
New York Stock Exchange - Composite Transactions on that date or, if the Shares
are not traded on that date, on the next preceding date on which the Shares
were traded.


 


(h)           Performance Measures.  The “Performance Measures” shall be based on
any one or more of the following Company, Subsidiary, operating unit or
division performance measures: gross premiums written; net premiums written;
net premiums earned; net investment income; losses and loss expenses;
underwriting and administrative expenses; operating expenses; cash flow(s);
operating income; profits, earnings before interest and taxes; net income;
stock price; dividends; strategic business objectives, consisting of one or
more objectives based on meeting specified cost targets, business expansion
goals, and goals relating to acquisitions or divestitures; or any combination
thereof.  Each goal may be expressed on
an absolute and/or relative basis, may be based on or otherwise employ 


 


15

















 


comparisons based
on internal targets, the past performance of the Company and/or the past or
current performance of other companies, and in the case of earnings-based
measures, may use or employ comparisons relating to capital, shareholders’
equity and/or shares outstanding, investments or to assets or net assets.


 


(i)            Shares.  The term “Shares” means common shares of the
Company.


 


(j)            Subsidiaries.  For purposes of the Plan, the term “Subsidiary”
means any corporation, partnership, joint venture or other entity during any
period in which at least a fifty percent voting or profits interest is owned,
directly or indirectly, by the Company (or by any entity that is a successor to
the Company), and any other business venture designated by the Committee in
which the Company (or any entity that is a successor to the Company) has a
significant interest, as determined in the discretion of the Committee.


 


(k)           Stock.  The term “Stock” is sometimes used to refer
to common shares of the Company.


 


(l)            Termination
of Service.  With respect to Awards
that constitute Deferred Compensation, references to the Participant’s
termination of employment (including references to the Participant’s employment
termination, and to the Participant terminating employment, a Participant’s
separation from service, and other similar reference) and references to a
Participant’s termination as a director (including separation from service and
other similar references) shall mean, respectively, the Participant ceasing to
be employed by, or ceasing to perform director services for, the Company and
the Affiliates, subject to the following:


 


(i)            The
employment relationship or director relationship will be deemed to have ended
at the time the Participant and the applicable company reasonably anticipate
that a level of bona fide services the Participant would perform for the
Company and the Affiliates after such date would permanently decrease to no
more than 20% of the average level of bona fide services performed over the
immediately preceding 36 month period (or the full period of service to the
Company and the Affiliates if the Participant has performed services for the
Company and the Affiliates for less than 36 months).  In the absence of an expectation that the
Participant will perform at the above-described level, the date of termination
of employment or termination as a director will not be delayed solely by reason
of the Participant continuing to be on the Company’s and the Affiliates’
payroll after such date.


 


(ii)           The
employment or director relationship will be treated as continuing intact while
the Participant is on a bona fide leave of absence (determined in accordance
with Treas. Reg. §409A-1(h)).


 


(iii)          The
determination of a Participant’s termination of employment or termination as a
director by reason of a sale of assets, sale of stock, spin-off, or other
similar transaction of the Company or an Affiliate will be made in accordance
with Treas. Reg. §1.409A-1(h).


 


16

















 


(iv)          If a
Participant performs services both as an employee of the Company or an
Affiliate, and a member of the board of directors of the Company or an
Affiliate, the determination of whether termination of employment or
termination of service as a director shall be made in accordance with Treas.
Reg. §1.409A-1(h)(5) (relating to dual status service providers).


 


(v)           The term “Affiliates”
means all persons with whom the Company is considered to be a single employer under
section 414(b) of the Code and all persons with whom the Company would be
considered a single employer under section 414(c) thereof.


 


(vi)          The term “Deferred
Compensation” means payments or benefits that would be considered to be
provided under a nonqualified deferred compensation plan as that term is
defined in Treas. Reg. §1.409A-1.


 


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